- Ashhab Khan & Janhavi Singh
E-commerce is indisputably the fastest evolving sector in India because of increased access to the internet and developing technology, both of which have led to an increase in consumer demand. It was further boosted with the relaxation in FDI norms due to which many international players entered the Indian markets and there was easy access to funding opportunities.
The year 2020 started with the Competition Commission of India (“CCI”) publishing the “Market Study on E-commerce in India” on 8th January. It is a report which encapsulates features of e-commerce and trends in the market, major competition issues, observations and findings. Further, on 13th January the commission ordered an investigation into Flipkart and Amazon for alleged anti-competitive activities.
The Indian Competition law regime is new to such developments in the E-Commerce sector and thus, the abovementioned report and case may provide a foundation for CCI to endorse competitive practices in the market. The authors, through a careful examination of the cases and the study, aim to highlight the need to check anti-competitive behaviour in the E-Commerce sector and its negative impact on the physical market.
Background of the Case
The order on the agenda is regarding the allegations made against Flipkart and Amazon, the two undisputed mammoths of the “Internet shopping era”. It first surfaced in the case of Delhi Vyaapar Mahasangh v. Amazon Seller Services Pvt. Ltd.(Amazon) and Flipkart Internet Services Pvt. Ltd.(Flipkart), where the informant alleged that sections 3 and 4 of the Competition Act, 2002 were said to have been violated by the defendants by possibly entering into vertical agreements with smartphone companies and manufactures based in China. Furthermore, the informants contended that the opposite party palpably enjoyed a dominant position in the market and was practising predatory pricing, which was apparently plausible owing to their exclusive tie-ups with the preferred companies. Through predatory pricing, the companies are able to set their market prices low and attract substantial consumer preference and consequently, several competitors face a threat of being thrown out of the business. It was also insinuated that this discriminatory practice undermined competition and in the long run, may prove to be detrimental to other sellers, therefore, affect the fair distribution of products.
The commission acknowledged the implications and noted that there is an incontestable potential to hamper competition and it may ultimately lead to Appreciable Adverse Effect on Competition (AAEC). While it was alleged that the companies practised collective dominance, the commission quashed it as the Competition Act, 2002 has no provision regarding the same. On account of such allegations and relevant evidence produced by the informant and available in the public domain, the director-general (DG) was instructed by the commission to look into the matter immediately and determine whether or not section 3(1) and section 4(1) of the were compromised by the defendants in the course of their business.
Later, Amazon India filed a writ petition in the Karnataka High Court to seek redressal. In its petition, the company submitted that CCI does not hold lawful jurisdiction over the matter and therefore cannot issue an investigation order into the adopted course of action of the company. It also pleaded against the absence of representatives from any relevant E-Commerce platforms during the hearing and CCI’s apparent ex-parte decision. Due to this, the petitioners said that there was a lack of opportunity extended to present a counter proposition to all the allegations hurled against them. The high court principally noted CCI’s diffidence in defining the relevant market in the present case as dominance cannot be established in isolation of the existence of a relevant market.
To substantiate its assertion, Amazon cited a similar case presented before CCI in November, 2018 where it had quashed All India Online Venders Association (AIOVA)’s postulation against Flipkart India stating that such companies do not enjoy dominant position in the market and thus, cannot violate section 4(3) of the Competition Act through their policies. Furthermore, the petitioner had shed light on the fact that CCI acted on a mere possibility that it “appears that the E-commerce companies are in exclusive agreements with smartphone brands”. Subsequently, Karnataka High Court on 14/02/20, issued an interim stay of four weeks on CCI’s investigation order. The High court later reiterated its decision in a writ petition filed by Flipkart India challenging the probe. Therefore, the high court’s stand in both cases presents a counter to CCI’s approach in disposing of issues emerging out of the expanding E-commerce market in India. It also raises a pertinent question regarding the need to adopt an effective mechanism helpful in timely determining whether or not E-commerce platforms are indulging in anti-competitive behaviour and are detrimental to the market.
Market Study conducted by CCI
The report “Market Study on E-commerce” released by CCI, aims to understand the modus operandi of the E-commerce market and identify emerging hindrances to competition and to ascertain CCI’s enforcement and advocacy priorities in light of the same. Since the revenue from the E-Commerce sector in India has been increasing at an annual rate of 51%, there are various challenges present in this sector in the competition sphere and this report is seen as a resource to overcome such challenges.
The study inspects the issue of platform neutrality and acknowledges that in both cases i.e. preferential sellers and private labels, there exists a lack of transparency mainly regarding search-ranking criteria, use of black-box algorithms and commercial terms offered by platforms, which may put other retailers on the platforms at a disadvantage. It concedes that there are limits to the data that can be unconcealed as it may raise the risk of businesses to game the systems. But this shouldn’t curb the platform to reduce the risk and hence should ensure ample transparency.
For exclusive agreements, it was observed that while it can increase prices and reduce choices, it can also increase efficiencies and competition among the brands of different manufacturers or service providers. Hence, it has to be analysed on a case-by-case basis and the commission can examine them u/s 3(4) of the Act in a ‘rule of reason framework’.
Deep discounts are significantly more than usual discount as there is a greater reduction in price as compared to the product’s original value. The CCI contemplated the requirement to recognize the schemes of discount used because the extensive deep discounts have a propensity to push costs below the price levels. While from the viewpoint of the consumers, so as to appeal to the demand, it’s vital to assimilate a moderate approach for discounting, as the same cannot be entirely done away with. Deep discounting raises apprehensions such as unfair conditions due to differential discounting structures, demotion in rankings, profitability erosion and loss of brand equity, etc. for retailers. The study further acknowledges that while deep discounts promoted customer on-boarding and increased network effects, no distinguishable cost-savings arose from it. Duly, it concludes that even though discounting for a short duration might be justifiable, longer periods would be put through a fact-intensive analysis. Thus, CCI has firmly emphasised to adopt a case-by-case review structure.
From the recapitulation of the study it is apparent that it envisages, the Commission’s intelligible intentions regarding online markets and transactions underneath their umbrella. This report shall be presenting a strict framework to closely monitor and initiate high-level investigations in this sphere. In the times of the widespread COVID-19, the consumers have moved to online platforms more than ever to purchase all kinds of goods ranging from essential supplies like groceries to electronics, kitchen appliances, clothes, toys & games etc. Hence, it is to be ensured that the practices adopted by such portals do not result in distorting the primary free-flowing market mechanisms of demand and supply.
A heedful and detailed analysis of CCI’s venture into the functioning of E-commerce giants in India and the ensuing disapproval shown by the judiciary conveys vital insight into the complications faced by the commission in taking futuristic steps to dodge anti-competitive practices in the internet era. While the probe ordered by CCI to enable the DG to investigate into the purported defiance of provisions laid under the competition act by E-Commerce platform is essential, it becomes incontestable that the commission doesn’t make arbitrary assumptions or relies upon dubious assertions when it comes to establishing responsibility. Moreover, taking into consideration the contemporary consumer preferences, relaxed FDI norms and business avenues emerging out of it, it is undoubtedly agreed upon that brick and mortar stores or physical retail markets are taking a steady backseat and online shopping is hitting the roof.
In such circumstances, the commission should adopt a more cautious strategy to efficiently deal with cases involving discrepancies as the one discussed above and penalize every anti-competitive practice taking place in the market impartially and irrespective of the players involved. This carefully moulded approach paired up with modifications in the Competition Act to sustain the physical market and sellers in the constantly evolving world of E-Commerce and its perceptible dominance is need of the hour.
The authors are 2nd Year students at NLIU, Bhopal